Foreign Portfolio Investors (FPIs) have been steadily withdrawing funds from the Indian equity market, with a notable sell-off of Rs 30,000 crore in the first fortnight of March 2025. This trend follows a significant outflow of Rs 34,574 crore in February and Rs 78,027 crore in January, bringing the total outflow to Rs 1.42 lakh crore (USD 16.5 billion) for the year so far, according to data from the depositories.
The prolonged selling pressure is attributed to a combination of global and domestic factors. The uncertainty surrounding US trade policies under President Donald Trump has raised concerns about a potential tariff-induced recession, dampening global risk appetite and prompting FPIs to adopt a cautious stance towards emerging markets like India, as noted by Himanshu Srivastava, Associate Director-Manager Research at Morningstar Investment.
Elevated US bond yields and a strong dollar have also played a significant role, making American assets more appealing to investors. Additionally, the depreciation of the Indian rupee has exacerbated the trend, as it erodes returns for foreign investors.
V K Vijayakumar, chief investment strategist at Geojit Financial Services, highlighted that FPI outflows from India have primarily shifted towards Chinese stocks, which are expected to outperform other markets in 2025. He added that while the recent fall in the dollar index may limit fund flows into the US, the uncertainty created by the trade war is likely to drive more funds into safer asset classes such as gold and the dollar.
In the debt market, FPIs invested Rs 7,355 crore in the debt general limit and withdrew Rs 325 crore from the debt voluntary retention route. This cautious approach by foreign investors is consistent with their behavior in 2024, when net inflows into Indian equities were a mere Rs 427 crore, a stark contrast to the Rs 1.71 lakh crore net inflows in 2023, driven by optimism over India’s strong economic fundamentals. In comparison, 2022 saw a net outflow of Rs 1.21 lakh crore amid aggressive rate hikes by global central banks.
